Brunei stake sale prelude to MAS facelift

Brunei stake sale prelude to MAS facelift

KUALA LUMPUR (Reuters): Malaysia's purchase of Brunei's stake
in Malaysian Airline System (MAS) marks a major step toward
preparing the ailing carrier for marriage with a financially-
strong foreign airline, analysts said on Monday.

MAS, saddled with over US$2 billion of debts and facing a
fourth straight year of losses, needs the financial muscle and
know-how of a foreign partner to stay aloft.

Swissair has been mentioned as a possible partner, and on
Friday Swissair parent SAirGroup said its information technology
unit will run IT services for MAS.

It said the transfer of people, assets and contracts will take
place within the next four months.

MAS confirmed at the weekend that the Brunei Investment Agency
(BIA) on Friday sold 70 million shares or 9.09 percent in the
Malaysian carrier to unidentified buyers.

Financial analysts said several government-related funds paid
four ringgit ($1.05) apiece for MAS shares, a slight premium over
MAS's closing price of 3.80 ringgit on Friday.

They said the government, in talks to buy a 29.09 percent
stake from MAS chief Tajudin Ramli, could then sell on part of
its stake to a foreign carrier.

KLM Royal Dutch and Australian carrier Qantas Airways have
also been mentioned along with Swissair as possible suitors.

Analysts said they had not expected the departure of the
Brunei investment arm to figure in MAS's restructuring, but
offered two theories why the government decided to buy out BIA.

One theory is the move will diminish the bargaining power of
Tajudin, who is widely reported to be seeking a price tag of
eight ringgit a share, the price he paid when he took over MAS in
1994.

The other is that, assuming the government met Tajudin's
demand, it could re-sell the shares bought from BIA at five or
six ringgit, which would be more in line with analysts' current
MAS valuation.

John Casey, an analyst at SG Securities, said he has a buy
call on MAS and put a target price of six ringgit.

Nor Azwa Mohamad Noor, an airline analyst at KAF Seagroatt and
Campbell, said the purchase from BIA would give the government
more room to negotiate with new buyers.

GK Goh Securities put a revalued net asset value (RNAV) target
of MAS at 5.49 ringgit, which it said reflected the carrier's
present fleet value and revised net debt position, without taking
into account any management rating.

"Although we believe the share price will not reach Tajudin's
asking price of eight ringgit, it is quite possible that the
government may include various incentives to entice a prospective
buyer," it said in a research report.

"This is in addition to the fact that MAS already offers a
strategic Asian exposure," it said.

The sweeteners may include scrapping some of the loss-making
domestic routes and even allowing total management control.

The government currently has a golden share in the national
carrier, which gives it the right to veto any board decisions.

"We dare not ascribe any values to these incentives, but
foreign carriers looking for an Asian partner will have to think
hard before coming to a decision," GK Goh said.

MAS last Wednesday posted a net loss of 398.04 million ringgit
for the six months to September 30, against a net profit of
275.01 million in the same 1999 period.